December sales strong, but some chains under pressure

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Published January 03, 2013

| Reuters

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J – Several major U.S. retailers beat expectations of modest sales increases in December as shoppers wrapped up holiday buying, but results were mixed and only stores that were nimble enough thrived in an uncertain economy.

Costco Wholesale Corp, Nordstrom Inc, TJX Cos Inc and Ross Stores Inc were among winners of the month, but such chains as Target Corp and Family Dollar Stores Inc felt the pinch as consumers were cautious in their holiday spending.

Sales at stores open at least a year rose 4.5 percent, topping analysts' estimates for 3.3 percent growth for December across 17 chains. The result reported Thursday also topped 1.6 percent growth in November 2012 and a 4.2 percent increase in December 2011, according to Thomson Reuters I/B/E/S.

Companies like Costco, TJX and Ross "are able to thrive in whatever economic environment they happen to be operating in" by adjusting their business models, inventory levels and sales strategies better than many peers, said Craig Johnson, president of Customer Growth Partners.

The stronger-than-expected December is likely to help retailers overcome a softer start to the holiday season. The 2012 season was never expected to be stellar, but even the single-digit growth anticipated by chains and analysts came under pressure as Superstorm Sandy, the ever-present headlines about the "fiscal cliff" and the Connecticut school shootings affected consumers' moods in the key months of November and December.

But the number of retailers that report monthly sales have dwindled in recent years and offer only a limited snapshot of consumer behavior. Industry heavyweights like Wal-Mart Stores Inc and sector leaders like consumer electronics chain Best Buy Co Inc have yet to report sales for the holiday season.

As retailers finish up their quarter this month, they are bringing out fresh merchandise while offering deep discounts to move the winter goods that did not sell at full price.

"The consumers' confidence is off a bit, and I don't think you can point to a single individual thing. It's a culmination of things that hit their psyche," said Madison Riley, managing director of retail consulting firm Kurt Salmon.

Kohl's Corp cut its fourth-quarter profit outlook due in part to the need for deeper discounts. It expects to earn $1.60 to $1.62 per share, down from its prior outlook of $2.00 to $2.08 per share. Still, its 3.4 percent rise in December same-store sales came in ahead of expectations.

"Sales came late in the holiday shopping season and, as a result, were at deeper discounts than planned," said Kohl's Chief Executive Kevin Mansell.

But at Barnes & Noble Inc, holiday sales fell sharply, with a decline in the number of Nook devices sold and shoppers at its stores.

Kurt Salmon's Riley predicted that if the upcoming debt ceiling debate goes better than the Washington wrangling to avoid the cliff, there could be a bigger uptick in consumer spending in 2013.

HITS AND MISSES

Macy's Inc's same-store sales were up 4.1 percent, just above the 4 percent analysts expected. But the department store chain lowered its fourth-quarter sales and profit forecasts because the rate of growth in November and December was "somewhat" less than it expected.

Family Dollar's same-store sales rose about 2.5 percent in December after increasing 6.6 percent in the preceding quarter.

"The holiday selling season proved to be more challenging than we expected as customers faced increasing financial uncertainty," said Family Dollar Chairman and CEO Howard Levine.

Target's same-store sales were essentially flat, while analysts anticipated a 0.8 percent increase. Target said fourth-quarter earnings should meet or somewhat exceed the low end of its forecast.

Limited Brands Inc sales rose less than anticipated, marking a rare miss for the owner of the Victoria's Secret chain. Limited said its merchandise profit margin came in below its own forecast.

Wet Seal Inc expects a fourth-quarter loss at or near the bottom of its prior forecast. Wet Seal said same-store sales fell 9.7 percent, the biggest drop of any of the 17 chains that reported sales. Analysts predicted the chain, which caters to teens, would have the weakest sales among the retailers, but only anticipated a 5 percent decline.

Costco posted a 9 percent rise in December same-store sales, topping estimates for a 6.5 percent increase, boosted by an additional sales day in the reporting period. Higher fuel prices and a weaker dollar also helped.